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July 29, 2011

Some statistics about retirement

An article posted at morningstar.com July 28th, “25 Shocking but True Statistics About Retirement”, provides an incentive to plan.  The earlier one starts to plans for retirement and monitors their progress the more likely they are to have a comfortable retirement.  
Men will live on average 17 years after retirement.  Women will live on average 21 year after retirement.  Since these are averages, half of us will live longer and half will not live that long.  To properly plan you have to look into the future.  At least 20 years after retirement.
$740,000 of assets are needed if $50,000 of annual income is needed for 25 years, assuming a 5% rate of return and no inflation..  The amount is $1,000,000 if the inflation rate is 3% rather than no inflation.  If the inflation rate is 5% rather than 3%, the amount is $1,250,000.  Inflation must be considered in your planning.  45% of retirees do not factor  inflation into their planning.    The amount of inflation you plan for will depend on whether you are an optimist or a pessimist.  Then you have to allow for the fact that your forecast may not be accurate.  Monitoring your progress at least annually allows you to make adjustments.  It will be easier to adjust if inflation is less than you project. 
The annual monthly Social Security benefit will be $1,000 for a 62 year old who starts collecting benefits this year, assuming annual earning of $50,000.  If that retiree delays applying for Social Security benefits until age 70, the monthly benefit will be $1,951.  The annual increase in benefits currently exceeds comparable annuities being issued currently.  Currently 72% of recipients of Social Security benefits beginning at age 62.  When you start taking social security benefits and when you start taking withdrawals from Individual Retirement Accounts and qualified retirement plans can have a significant impact on how much you have available during your retirement.  
80% is a common rule of thumb for the amount of your pre-retirement income that will be needed in retirement.  Rules of thumb are probably less reliable than averages.  Start this aspect of your planning by analyzing your current expenditures.  The next step is to determine the expenses that you expect to change in retirement.
It is never too late to start planning.   As Winston Churchill said during World War II, “He who fails to plan is planning to fail” 


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